GOLD OIL

Research Page (Supplement)

Do not post on this thread for Research only.

Memorandum of Understanding (MOU) with MAN Ferrostaal
MAN Ferrostaal
Gold Oil has decided that one of the best ways of using stranded gas reserves is as a feedstock to a petrochemical plant. As a result, in October 2004, Gold Oil signed a Memorandum of Understanding (MOU) with MAN Ferrostaal, a large German engineering company that has operated in Peru for years, to supply gas to a petrochemical plant to be built in the area. Under the terms of the MOU, MAN Ferrostaal will evaluate the feasibility of constructing a petrochemical plant in the area, while Gold Oil will assess gas supplies and pipeline transportation options. The MOU envisages a number of development stages as more and more gas reserves are procured and/or discovered. Gold Oil has the option to a 35% participation in the petrochemical plant while MAN Ferrostaal has a similar option to participate in the upstream gas supply. The area in Northern Perhas several deep-water ports capable of handling large petrochemical exports with low cost green-field sites also available.

Petrochemical Plant Development Plan
MAN Ferrostaal is a leading petrochemical plant contractor and owns several manufacturing complexes in Trinidad, Chile, and Oman. The MOU with Gold Oil envisages building a 1,850 tonnes per day ammonia plant, as well as the export facilities and pipeline to Gold Oils gas fields at a total cost of US$350 million. Gold Oil is committed to supplying 500 BCF of natural gas over a minimum 20-year period. The gas price is linked to the commodity price of the exported product with a floor price. The project only goes live once Gold Oil has secured the gas reserves. It is expected that Gold Oil will bring in a large upstream partner in the near future to assist with the programme.

According to Gold Oil, the petrochemical plant will be extremely profitable. Using a feedstock cost assumption of US$1 per million BTU and an ammonia selling price of US$143 per tonne, the Company estimates that the project will yield a net profit of US$33 million per annum with a net present value (NPV) using a 12 per cent discount factor of US$224 million. If we factor in the current price of ammonia, which is US$240/tonne, the project would generate a net profit of US$55 million per annum and a NPV of US$374 million using a 12 per cent discount (a figure consistent with the discount rates used by other oil majors in similar projects).

Figure 9: MAN Ferrostaal Project
Financial Robustness of MAN Ferrostaal Project
Gas feedstock cost assumption (US$/mmbtu) Selling Price of Ammonia(US$ per tonne) Net Profit per annum (US$ million) Net Present Value 12 % discount factor (US$ million)
1.00 143 33 224
1.00 240 55 374

Source: Gold Oil, Edison Investment Research

Gold Oil feels that it is covered in the event of low gas prices because of its 35 per cent buy-in option as this way it will participate in the very high level of profits generated using low gas prices.

Other Opportunities for Selling Gas
Gold Oil also expects to receive cash flow from supplying gas to Duke Energy, which would convert 12 idle diesel-fired units in Piura to gas, to generate up to 88 MWs of electricity. Duke would also build the gas pipelines and operate the units. The revenue from this venture would be split between Duke and Gold Oil, which estimates that it would receive between US$3million to US$8 million per annum. Other possibilities of selling gas would be to the Boyovar fishmeal plant that needs 4 mmcf/d. The cost of supplying the plant has been estimated at US$12.5 m, giving the project an NPV US$12.2 million using a 12 % discount. "

Back To Research Page
http://www.moneyam.com/InvestorsRoom/posts.php?tid=10572#lastread

Back To Main Thread
http://www.moneyam.com/InvestorsRoom/posts.php?tid=9549#lastread

will this move the shares up mon.